Magna Gold in prime position become Mexico’s next major precious metals producer

2021.10.06

In terms of precious metals, few places in the world can offer the promise of high production, low costs like Mexico.

Thanks to its rich abundance of minerals, the Latin American nation has accumulated more than 500 years of mining history. Today, it sits alone at the top of the silver producer pyramid, with over 20% of the global mined output.

Its gold output is also significant enough to have a place in the world’s top 10 list.

For many prospective miners, Mexico’s potential as a major gold producer has often been overlooked and overshadowed by its status as the world-leading silver producer. It boasts several hydrothermal veins and gaps that can be associated with gold and silver mineralization.

The Caborca gold belt of Mexico is considered one of the most prolific areas for mining gold in North America. This megashear, which stretches from the southern US into Sonora state and hosts many gold mines and deposits, has produced millions of ounces of gold in recent years.

This geological advantage has Mexico primed to become an attractive destination for gold explorers for years to come.

Magna Gold

One junior miner that has already found success in Mexico’s burgeoning gold sector is Magna Gold (TSXV: MGR, OTCQB: MGLQF), which aims to become its next major precious metals producer with multiple gold and silver assets spread across the mineral-rich states of Sonora and Chihuahua.

The company’s crown jewel is the former producing San Francisco mine, which it restarted last year and is quickly ramping up production.

The latest update on San Francisco showed a gold output of 5,398 ounces for the month of June, a record to date. This brought its Q2 2021 production to 11,713 ounces, which was 20% higher than the previous quarter.

Through the year, gold production at San Francisco totalled 21,498 ounces, placing Magna on track to meet its full-year guidance of 55,000 to 65,000 ounces.

“The end of Q2 marked a major milestone for the Magna Gold team. We achieved commercial production on schedule and had our highest production total in the month of June. We are seeing production ramp up every day and look to end the year producing ~7,500 oz Au per month,” president and CEO Arturo Bonillas stated in a July 14 press release.

Things are now falling in place for San Francisco to become a major gold producer in Mexico as the mine continues to ramp up moving forward.

To give a perspective of the San Francisco mine’s potential, below is an overview of the project, including its geology and history.

The San Francisco Mine

Geology and Mineralization

Situated 150 km north of Hermosillo, the capital of Sonora, Mexico, the 47,395-hectare property lies in a portion of the Mojave-Sonora megashear belt characterized by the presence of Precambrian to Tertiary age rocks.

The rocks principally involved in the process of deformation and associated with the gold mineralization in the region are of the Precambrian, Jurassic and Cretaceous age.

The oldest rocks within the property are a package of metamorphic rocks which include banded quartz-feldspathic gneiss and augen gneiss, green schist, amphibolite gneiss, and some amphibolite and marble lenses.

The metamorphic rocks are intruded by a Tertiary igneous package, which includes leucocratic granite with visible feldspar and quartz, and is porphyritic to gneissic in texture. It appears that the granite was emplaced along low angle northwest-southeast shear zones in the system, which developed between an older gabbro and the metamorphic sequence.

Besides the gabbro and the granite, dikes of different compositions, including diorite, andesite, monzonite and lamprophyre, intrude the metamorphic sequence. In addition, lenses of pegmatite associated with the schist have been mapped, emplaced along the foliation planes, occasionally forming lenses within the gabbro and within the gneiss and on the border of the leucocratic granite bodies.

All of the rocks described above form what is known as the San Francisco unit, the most important unit for exploration, with the leucocratic granite being especially significant because it is the primary host rock for gold mineralization.

Mapping of isolated outcrops and their geological interpretation demonstrates that the San Francisco unit is extensive within the property, covering a surface area of approximately 100 square kilometres.

The unit hosts at least 15 gold occurrences that are considered to be favourable exploration targets, in addition to the known San Francisco and La Chicharra gold deposits.

Project History

The San Francisco property consists of two previously mined open pits (San Francisco and Chicharra) and associated heap leaching facilities (see below).

The mine was previously operated by Geomaque from 1995 through 2000. During that time,  approximately 13.5 million tonnes of ore at a grade of 1.13 g/t Au were treated by heap leaching, and 300,834 ounces of gold were recovered. Average gold recovery over the mine life was about 63%.

Mining operations ceased in 2001 as a result of low gold prices, although leaching and rinsing of the heap continued for approximately one year after this.

In 2005, Timmins Gold (now Alio Gold) acquired the mine and processing equipment and began commercial operations in 2010. Since then, the mine has processed more than 1.2 million ounces (over 100,000 oz per year on average), making it one of Mexico’s most successful gold mining operations in recent history.

Looking to re-establish San Francisco as a profitable mine, in March 2020, Magna agreed to acquire the project for nearly 20% of its share capital, a move indicative of the company’s strong belief in this former-producing gold asset.

“We have a simple business model; it starts with growing organically. We only acquire properties in near-term production that were either mismanaged or forgotten in previous years,” Magna’s President and CEO, Arturo Bonillas, said in a 2020 interview, adding that the San Francisco mine was “such a perfect match” for this operating model.

Last September, the company released an updated Pre-Feasibility Study (PFS) on the property, showing total proven and probable reserves of 47.6 million tonnes, graded at 0.495 g/t Au, leaving 758,000 ounces of contained gold.

“The numbers were great. The study shows that we have 1.5 million oz of resources in the ground. We have close to 800,000 oz of gold that we’re going to extract from the mine over the next seven years, at a rate of 70,000 oz per year,” Bonillas commented on the PFS results.

There is also ample room for resource expansion, he said, citing an estimated upside of 3 million oz gold and 50 million oz silver.

Production at San Francisco restarted in June 2020 from the open pit and in September 2020 from an underground portion.

Full-Scale Production

About a year into restarting mining activities, Magna announced in June 2021 that the San Francisco mine had achieved full-scale commercial production on June 1, as scheduled, placing the company on track to meet its 2021 production guidance of between 55,000-65,000 ounces.

Magna anticipates a run rate of around 6,000 ounces per month during the third quarter, then ramping up to about 7,500 ounces by the end of this year.

During the first half of 2021, the company managed to significantly lower the mine’s strip ratio from about 8:1 to 3:1, which is trending in the right direction towards the life of mine average of 2.5:1.

New leach pads have also been constructed and fresh ore is being stacked at a rate of 900 tonnes per hour. The expected recovery rate is ~70%, with further improvements anticipated over the remaining seven years of mine life.

Moving forward, Magna believes a lower strip ratio and increased recovery rates will lead to further cost improvements.

“Achieving full-scale commercial production in such a short period of time is a testament to the hard work and quality of our Mexico-based operations team and as a company. Production numbers are trending upwards month-to-month, and we anticipate exiting the year producing ~7,500 Au oz/month,” CEO Bonillas stated in the June 29 news release.

At full capacity, San Francisco is capable of producing 90,000 ounces annually, which, based on a minimum gold price of $1,700/oz and a maximum of $1,800/oz, has the mine bringing in somewhere between $153 million and $162 million a year.

Next Steps

While Magna’s gold production continues to ramp up at the San Francisco mine in Sonora, the company has also been advancing several of its other highly prospective assets.

The next area of exploration focus is Chihuahua, where its newly acquired Margarita silver project is situated. The project is a low-intermediate sulphidation epithermal Ag-Pb-Zn system, which can be traced to many of Mexico’s producing silver mines.

The Margarita property is located about 15 km northwest on strike with Sunshine Silver’s Los Gatos mine (>100 million ounces).

Past work has identified more than 7 km of outcropping multiple veins inside the property, but only one vein has been drilled to date. Channel sampling has returned values ranging between 100-900 g/t Ag.

Magna plans to complete 10,000 metres of drilling for expansion exploration at depth at the Margarita vein system and infill resource definition along strike. This is aimed to convert and expand the current inferred geological resource into higher categories.

Furthermore, the company has planned 1,500m of drilling on the Mina del Oro target to define an initial gold and silver resource.

Conclusion

The restart of production at San Francisco is only the beginning of another success story in Mexico, and there’s plenty of other precious metals assets for Magna to unlock such as the Margarita project.

It’s just very rare for a junior gold-silver miner to hold both a producing mine as well as many other projects within the same jurisdiction.

By just looking at its San Francisco mine’s net present value (NPV), which, at a 5% discount rate and gold price of $1,950/oz, comes to $231 million, we can tell that this company is on the “undervalued” side of the spectrum.

A scan of industry peers confirms that Magna’s stock, relative to NAV, is severely underpriced when compared against the consensus average (see above).

A key advantage Magna holds over many other miners is the fact that it doesn’t want (or need) to rely on the public equity markets to keep the company growing; it already has a cash-generating asset in San Francisco.

A steady cash flow gives Magna options, whether it be exploration work, more acquisitions, or extending the current mineral reserve base.

Magna Gold Corp.
TSXV:MGR, OTCQB:MGLQF
Cdn$0.73, 2021.10.05
Shares Outstanding 89.4m
Market cap Cdn$65.3m
MGR website

Richard (Rick) Mills
aheadoftheherd.com
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